Tuesday, April 11, 2017

A Proposed Regulation

The story about United dragging a passenger off an overbooked plane highlights how crazy the current system is. I would not go so far as to say that airlines should never overbook, but it seems that when they overbook, they should fully bear the consequences. They should be required to keep raising the offered compensation until they get volunteers to give up their seats. If $800 does not work, then try $1600 or $8000. I am sure volunteers will appear as the price rises.

This alternative system would have three benefits:

Those who can delay their travel at least cost will be the first to give up their seats so the allocation of available seats will be efficient.

Those who are delayed will be compensated so won't feel harmed.

The airlines will face better incentives when deciding how much to overbook.

About Me

I am the Robert M. Beren Professor of Economics at Harvard University, where I teach introductory economics (ec 10). I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.